Question 1. Question : Creditors’ claims on the assets of a company are called:

Net losses





Question 2. Question : If assets are $99,000 and liabilities are $32,000, then equity equals:






Question 3. Question : The principle prescribing that financial statements reflect the assumption that the business will continue operating instead of being closed or sold, unless evidence shows that it will not continue is the:

Going-concern principle

Business entity principle

Objectivity principle

Cost Principle

Monetary unit principle

Question 4. Question : If the liabilities of a business increased $75,000 during a period of time and the equity in the business decreased $30,000 during the same period, the assets of the business must have:

Decreased $105,000

Decreased $45,000

Increased $30,000

Increased $45,000

Question 5. Question : If equity is $300,000 and liabilities are $192,000, then assets equal:






Question 6. Question : Net Income:

Decreases equity

Represents the amount of assets owners put into a business

Equals assets minus liabilities

Is the excess of revenues over expenses

Represents the owners’ claims against assets

Question 7. Question : Distributions of assets by a business to its stockholders are called:




Retained earnings

Net Income

Question 8. Question : Which accounting assumption assumes that all accounting information is reported monthly or yearly?

Business entity assumption

Monetary unit assumption

Value assumption

Cost assumption

Time period assumption

Question 9. Question : Apatha Company has assets of $600,000, liabilities of $250,000 and equity of $350,000. It buys office equipment on credit for $75,000. The effects of this transaction include:

Assets increase by $75,000 and expenses increase by $75,000

Assets increase by $75,000 and expenses decrease by $75,000

Liabilities increase by $75,000 and expenses decrease by $75,000

Assets decrease by $75,000 and expenses decrease by $75,000

Assets increase by $75,000 and liabilities increase by $75,000

Question 10. Question : Stride Rite has total assets of $425 million. Its total liabilities are $110 million. Its equity is $315 million. Calculate the debt ratio.






Question 11. Question : The description of the relation between a company’s assets, liabilities and equity, which is expressed as Assets = Liabilities + Equity is known as the:

Income statement equation

Accounting equation

Business equation

Return on equity ratio

Net income

Question 12. Question : Reebok had income of $150 million and average assets of $1,800 million. Its return on assets is:





Question 13. Question : Which of the following elements are found on the Balance Sheet?

Service Revenue

Net Income

Operating Activities

Utilities Expense

Retained Earnings

Question 14. Question : Which of the following elements are found on the income statement?


Accounts Receivable

Common Stock

Retained Earnings

Salaries Expense

Question 15. Question : Internal users of accounting information include:




Government regulators

Line Supervisor

Question 16. Question : A credit is used to record:

An increase in an expense account

An increase in an asset account

An increase in an unearned revenue account

A decrease in a revenue account

A decrease to retained earnings

Question 17. Question : If Beginning Retained Earnings was $184,300, the company distributed $46,000 in dividends and Ending Retained Earnings was $345,000, what was the net income for the period?






Question 18. Question : Double-entry accounting is an accounting system:

That records each transaction twice

That records the effects of transactions and other events in at least two accounts with equal debits and credits

In which the impact of each transaction is recorded in two or more accounts but that could include two debits and no credits

That may only be used if T-accounts are used

That insures that errors never occur

Question 19. Question : Ethical behavior requires:

That an auditors’ pay not depend on the figures in the client’s reports

Auditors to invest in businesses they audit

Analysts to report information favorable to their companies

Managers to use accounting information to benefit themselves

That an auditor provides a favorable opinion

Question 20. Question : The financial statement that shows: beginning and ending retained earnings balances and the effects of net income (loss) and a dividend for the period is the:

Statement of financial position

Statement of cash flows

Balance sheet

Income statement

Statement of retained earnings

Question 21. Question : An example of a financing activity is:

Buying office supplies

Obtaining a long-term loan

Buying office equipment

Selling inventory

Buying land

Question 22. Question : Unearned revenues are:

Revenues that have been earned and received in cash

Revenues that have been earned but not yet collected in cash

Liabilities created when a customer pays in advance for products or services before the revenue is earned

Recorded as an asset in the accounting records

Increases to retained earnings

Question 23. Question : Of the following accounts, the one that normally has a credit balance is:


Office Equipment

Sales Salaries Payable


Sales Salaries Expense

Question 24. Question : Increases in retained earnings from a company’s earnings activities are:




Stockholder’s Equity


Question 25. Question : Prepaid expenses are:

Payments made for products and services that do not ever expire

Classified as liabilities on the balance sheet

Decreases in retained earnings

Assets that represent prepayments of future expenses

Promises of payments by customers